IRDAI Proposes Cut In Life Insurance Surrender Fees

The IRDAI's exposure draft suggests reducing surrender charges for life insurance products, especially non-par savings plans. It proposes a premium threshold beyond which insurers cannot levy surrender charges, returning the premium to policyholders.

If implemented, these changes may affect insurers' margins, necessitating adjustments in Embedded Value (EV) calculations, potentially lowering estimates. Insurers might alter product structures to accommodate these shifts, possibly impacting persistency assumptions.

Insurers could counter this by revising commission structures, rewarding distributors for improved persistency. Lower surrender charges might alter customer behaviour, encouraging more confident investment but potentially affecting persistency levels.

The draft lacks specific threshold details, making it challenging to gauge the exact impact. Insurers are expected to provide feedback before final regulations are announced.

An example in the draft highlights complexities, considering a non-linked savings insurance policy with specific premiums and terms.